A customer washes his windows as he gets gas at a gas station on July 3, 2024 in Mill Valley, California. AFP/Getty Images
As of today, energy prices in many countries are wrong since “they are set at levels that donot reflect environmental damage, notably climate change, air pollution, and various side effects of motor vehicle use, such as traffic accidents and congestion.” An idea that is gaining momentum in the fight against the warming planet – and the distorted energy prices – is that those prices should reflect the health and environmental costs of burning fossil fuels as well. At least that is the direction that the International Monetary Fund is aiming for – it’s time to get energy prices right, they state in a recently published book – as they present a proposal through which they say that appropriate taxes can discourage overuse of environmentally harmful energy sources.
In the book, Getting Energy Prices Right: From Principle to Practice, the IMF asserts that correcting energy prices would offer greater economic possibilities as well as large health, environmental and fiscal benefits. Its a practical guidance for over 150 countries on how to go about quantifying the harmful side effects of energy use, and to show what this implies for corrective taxes on coal, natural gas, gasoline, and road diesel. According to the Fund, the objective of the research is to seek how policymakers can strike the right balance between the substantial economic benefits of energy use and its harmful environmental side effects.
Vitor Gaspar, head of the IMF’s Fiscal Affairs Department, said: “Fuel tax reforms can yield substantial health, environmental, and fiscal benefits. According to our estimates, moving from existing to efficient fuel prices, at a global level, would reduce pollution-related deaths from fossil fuel combustion by 63%, mostly from reduced coal deaths, reduce energy-related carbon emissions by 23%, and raise revenues equal to 2.6% of GDP.”
The IMF is searching for ways to promote the central role of fiscal policy in addressing climate change. “When the environment is degraded, the economy is degraded as well,” said Christine Lagarde, managing-director of the IMF, at a presentation around the new book at the Center for Global Development in Washington D.C. last week. (Watch the video below of her presentation).
The international debate on policy responses to climate change is focusing more and more on how to calculate the correct price for coal, natural gas, diesel and gasoline. Countries can act now and get the most out of the revenue potential they have if the price tag on energy were right. “We’re not advocating higher taxes, we’re saying smarter tax is needed,” said Lagarde. It’s a step forward from her bold statement a little over two years ago: “Getting the prices right means using fiscal policy to make sure that the harm we do is reflected in the prices we pay.”
As the run up to the climate change summit in September hosted by the United Nations secretary-general takes shape – it is expected it will be attended by heads of state worldwide – they will convene in search of actions and solutions by both national governments and groups of governments working together, they now have a useful book to bring these changes to place – starting by getting energy prices right. Even better, they don’t need an international agreement to do so.
